In this post we are going to look at a day of trades using the new Buy Sell Pressure indicator and look at the trading results. When I use the term trading results, what I mean is not a winning percentage. What we are going to look at is the trades themselves and what the new indicator was telling us going into the trade. In this sense the trading results will be subjective because it is left up to you to determine, with the information available, would you have taken the trade. You can then objectively judge the results. For example, there may only have been 3-4 arrows telling you to take a trade and that trade gave you 7 ticks before reversing. Another trade may have given you 6-7 arrows and resulted in 3.5 points. Or there could have been arrows going against your position when it was time to take the trade, and that trade gave you adverse excursion and only a few ticks of favorable excursion.
What I have done differently is that I have used a different set of variables to assess a potential trade. There are two main variables to this indicator which give it a great deal of flexibility. Those two variables are the Deviation Points and the Ratio Levels. Deviation Points is when we tell the formula that we have a zigzag. The ZoneTraderPro indicator is based on a 6 tick zigzag and that is the red line you see on the price chart going from highs to lows. When there is a zigzag, 90% of the time you are going to see the indicator spike. This is expected. For example, if we have just made a high, the % of the contracts will have been buyers. When the sellers come in and drive price down and we have a zigzag, we are taking those buy contracts out of consideration, so you see the spike.
What is important about the spike is what happens after. This picture indicates both behaviors. The number can spike and form an immediate V shape. The V shape is indicating a reversal. The other behavior is where the indicator remains at/or increases in value. The number you see in the oscillator pane is irrelevant and has no meaning.
The second variable is the ratio levels. The ratio levels tell the indicator haw many ticks worth of information you want to look at. So if you want to look at a 6 tick zigzag with 6 levels of price, you would use 1.25 for the Deviation Points and 6 for the Ratio Levels. The Deviation Points is always 1 tick less than you want to see.
The last available variables is where you want to see the extremes at and print an arrow. The defaults are set at 60/40, but you are highly encouraged to experiment using market replay and determine optimum settings.
What is used in this post are 4 different settings for the oscillator. I made the deviation points / ratio levels at 4/4 ,5/5, 6/6 and 7/7 to see if one particular combination was better than another. What I found was all 4 gave me information that I wanted. The 4/4 gives a “fast” setting and the 7/7 is “slower” and looks at more information.
Trading Results From Monday 4/03/17
The Trading Results will look at Tick Divergence, Exhaustion, Reversal, Trend Exhaustion, and Trend trades from 0945 hours EST to 1545 hours. I will place comments on the pictures. The trading results are a lot easier to see on a live chart or when you use crosshairs.
This 1st picture illustrates the settings for the indicator. The top panel (Panel 1) is the slow 7/7 setting and the bottom panel is the fast 4/4 setting. A dark red horizontal line is placed in each panel at the 50% level.
There were some absolutely great setups and some marginal setups. The point is that the arrows accurately tell you when you have a good setup, marginal setup, or a probable loser. ZoneTraderPro was never meant to take every trade pattern. Now without the use of other order flow programs, you can make the reading of a chart much easier.